In this article, the Capital Properties experts look at the ins and outs of industrial property investment, to help you determine if it’s a good choice for you. We’ll explain how industrial property investment can provide a positive cash flow and has the potential for impressive long-term returns. However, as with all investments, it’s important to do your homework before you dive in.
Industrial commercial property investment is a complex market with many differences to residential investments. Investors must understand varied property management options, leasing arrangements and financing obligations.
The Capital Properties team has extensive experience in residential and industrial property investment. We are dedicated to educating, mentoring and guiding Australian Defence Force members through successful property investment. We provide numerous tools and resources, with updated blog posts covering topics such as ‘buying a house while in the defence force’, and ‘the types of home loans available to those in the ADF’, to make sure you are empowered in your investment decisions.
So, let’s look at industrial property investment more closely, and where better to start than with the basics: What is industrial property?
There are a variety of factors to consider when investing in industrial property. If you want in-depth, personalised recommendations, we recommend that you book a free discovery session with Capital Properties today.
On the go? Here’s 30 seconds of take outs:
- Industrial property is a type of commercial property that is not usually considered as public facing, e.g., factories & warehouses.
- Post-pandemic uses of industrial properties are expanding to include “dark stores” & micro fulfilment centres for online retail & new entrepreneurial businesses.
- The demand for industrial property spaces is higher than ever and continued growth is forecast.
- Industrial properties offer double the rental yield of residential properties with great capital growth potential.
- Expect longer lease periods, annual rent increases and a wide range of purchase price points.
- Capital Properties buyer’s agent service specialises in sourcing industrial properties for investment.
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You probably already have an idea of what industrial property is, and it may be quite accurate, although if you were asked to define it, you might find it a little trickier.
Industrial property has traditionally been defined as a type of commercial property that is generally not public-facing. To date this has included operations like factories, warehouses, and storage centres, etc. While this definition has been historically true for the most part, with the recent rise in the industrial-chic style and the popularisation of converting industrial property into hip bars and restaurants, the definition of industrial property and what it means to be an industrial property investor is changing.
Some industrial property investors might feel that expanding the use for these industrial properties might complicate the investment process. But at Capital Properties, we strongly disagree. Now that industrial property isn’t limited to its original purpose, the possibilities have expanded greatly. That warehouse can be a block of refurbished loft-style apartments, that old factory can be a trendy new distillery – the potential is endless.
From an initial investment point of view however, the closer we can design a building to serve its intended purpose, the better. It will save time and money on set-up costs and give you and your renters clarity on its use. Still, it’s good to know you’re not limited to just a few ideas.
How is the industrial property investment market performing right now?
The aftermath of Covid-19 has significantly affected the Australian economy and both the residential and commercial property market. We’ve seen a holding pattern in some urban retail and office spaces, but industrial warehousing space is in higher demand than ever. In 2021, almost 5 million square metres(sqm) of industrial and logistics space was leased in Australia, a whopping 80% increase on the 10-year average.
In fact, industrial property investment has become one of the most sought-after asset classes by investors. The surge in online shopping has created a new demand for “dark stores” and micro fulfilment centres, i.e., warehouse spaces to store inventory and act as a retail distribution centre that caters exclusively for online retail. CBRE recently forecast of $1billion of ecommerce in the next 4 years, fuelling the requirement for an extra 70,000sqm of industrial space by 2025.
And the rise of enthusiastic entrepreneurs means that new business activity is booming, with the Australian Bureau of Statistics showing 365,000 new businesses trading in 2020-21, an 8.6% rise on the previous year. As well as the online space, there’s an increased trend towards using industrial spaces for microbreweries, gyms, recreational facilities, showrooms etc.
Is Industrial Property a Good Investment?
Yes! We can unequivocally say that industrial property is a good investment. Industrial property generally offers yields of about 8%, compared to 4% for residential property.
Another thing to note is that during the pandemic, logistics and warehouse businesses were labelled as essential services. This means when other industries were slowing down, industrial property kept on ticking and kept on returning on investment. Investing in industrial property ensures you have secure income for trying times if anything like that happens again.
Still need to be convinced? Here are 8 more reasons that explain why industrial property is a good investment.
- Industrial property generally has a higher return than other commercial or residential properties.
- There is growing tenant demand for industrial properties.
- Small site coverage ratios (meaning they are usually reasonably priced).
- Projected capital appreciation for the foreseeable future.
- Longer lease periods than residential (generally at least three years, often more).
- Rent is usually increased each year.
- Tenants usually pay outgoings (council rates, insurance and land tax, maintenance, etc.).
- Wide range of price points – lots of great entry-level options such as car parks.
Based on the evidence above, we hope we’ve convinced you that industrial property is a good investment! So now, let’s look at how to buy industrial property.
How to buy industrial property
If you want a hassle-free way of buying industrial property, then why not use our Buyer’s Agent Service? Our experts at Capital Properties will take care of all the hard work for you and make sure you get the best deal.
If you’d prefer to look into buying industrial property yourself, check out our top 10 tips to help you buy your first investment property:
- Research thoroughly before buying your property.
- Choosing the right location is vital.
- Work out your budget, including projected expenses & profit.
- Refrain from making emotionally charged decisions or let our expert Buyer’s Agent Service team negotiate for you.
- Prepare thoroughly for negotiations; don’t be scared to ask for what you want.
- Choose investment partners wisely & clearly assign duties & tasks.
- Be finance-ready – seeking pre-approval for a loan is free, easy, & will save you money.
- Check the condition of the property & don’t over-capitalise on improvements.
- Make sure you have time to invest in your property or hire an expert to help.
- Stay updated on property maintenance & regulations.
How to Find Industrial Property for Sale
The most common way people search for industrial property is by looking at property aggregators such as realcommercial or commercialrealestate, or looking at their local real estate agent’s commercial listings. Although, that will give you a good overview of what’s happening in the market, people often discover that the most desirable industrial spaces are sold before they make it online for public viewing. That’s why it pays to have relationships in the industry.
The Capital Properties buyer’s agent service specialises in sourcing all types of property options, including industrial properties. We live and breathe the ins and outs of industrial property investment.
Not only do we hear about available properties first, but we’ll also evaluate the potential return on industrial and commercial properties. We examine the potential to add value with subdivisions and renovations and support you throughout the full property investment experience. During the Capital Properties free discovery session, we’ll get to know you and devise a plan that’s suitable for your circumstances. Our aim is to help you turn your disposable Defence income into the kind of financial freedom your parents and grandparents will want to brag about!
We understand the unique demands of Defence life. We’re an approachable bunch of energetic, knowledgeable property investment experts with ex-Defence personnel within our ranks. In fact, our Founder, Marcus Westnedge, started right where you are now.
So, if you’re looking to start investing in industrial property, contact us today.
As Australia’s Leading Defence Force Housing & Property Investment Specialists, Capital Properties’ mission is to help you turn your Defence income into financial freedom.
Book a free Discovery Session today and let’s get started.